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Restrictive Bond or Debt Covenant
In this case the debenture holders will impose strict conditions and terms on the borrower. These restrictions may comprise:a) No disposal of assets with no the authorization of the lender.b) No payment of bonus from retained earningsc) Maintenance of a provided level of liquidity indicated through the Amount of current assets in relation to current liabilities.d) Restrictions on organizations and mergerse) No using of additional debt, before the current debt is completely serviced or paid.f) The bondholders may recommend the category of project to be undertaking in relation to the riskiness of the project.
Explain the term - Underwriting Underwriting is an agreement whereby underwriter promises to subscribe to a specified number of debentures or shares or a specified amount of
Consider a binomial model of a risky asset with the parameters r = 0:06, u = 0:059, d = 0:0562, S 0 = 100, T = 1, 4t = 1=12. Note that u and d are monthly effective rates of retur
Compute the risk premium for the stock of Omega Tools if the risk free rate is 6%, the expected market return is 12%, and Omega's stock has a beta of .8. Ome
Marginal cost of finance This is cost of new finances or additional cost a company has to pay to raise and use additional finance is given by: (Total cost of marginal finan
Government Budget Deficit If the Government spends much more than it gets in from tax revenue, it runs a budget deficit. This deficit should be covered or financed either via
What is a Treasury bill? How risky is it? Treasury bills are short-term debt instruments granted by the U.S. Treasury which are sold at a discount and pay face value at maturit
Development Banks and Financial Institutions There are some sectors in the economy such may not secure adequate funds from commercial banks for different motives. a) May re
Disadvantage of Joint Stock Companies Difficult to reconstruct the capital Many formalities in forming the company Heavy initial capital outlay. Loss of secrec
Significant Features of Partnership 1) The capital is contributed by the partners and no appeal is made to the public. 2) Like the sole proprietorship, a partnership has a l
Bird-in-hand Theory Advanced via John Leitner in year 1962 and furthered with Myron Gordon in year 1963. Argues such shareholders are risk averse and prefer specific. Dividend
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